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Updated over 4 years ago, 08/18/2020
Wholesale problems today
What’s the biggest issues with wholesaling in today’s market and how do you suppose it could be fixed?
#3 Investor Mindset Contributor
- Handyman
- Pittsburgh, PA
Originally posted by @Justin Badillo:
@James Hamling then this is exactly how I will practice. Thank you
Dude once left a sticky note on a mailbox offering to buy one of my properties. I called him up and he said, "Yeah, I'm trying all kinds of things to see what works." Don't try sticky notes.
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@Mike Cumbie this is so true! I marvel at the success of marketing this to beginners:
A reallly difficult process undertaken by insanely undercapitalized beginners is marketed as “the way in” to real estate. Talk about setting yourself up for failure
Barrier of entry is the biggest issue in my opinion. You can wake up tomorrow and deem yourself a wholesaler. No education, no property under contract, no buyers, etc... but you get the same title as someone like me who took the time to get a real estate license so I can understand comps and value. Someone who has personally GC'd hundreds of projects. Someone who understands construction numbers and the importance of a contingency allowance. Someone who knows which neighborhoods should have a budget for security and have those costs reflected in the offering...and most importantly, someone who understands that the end investor needs to make money for the machine to work.
Unfortunately, most of the wholesaler stereotypes are well deserved.
The wholesaler that everybody hates is the guy that does assignments with intention. Nothing wrong in that, but it is hard and that should not be the goal. Go out there with the ability, capability, mindset, and intention that you are buying that house. Actually, plan to buy them. Get the money. Have plan B options, like your friendly neighborhood hard money guy. Be ready and do it.
Actually become a whole-tailer. Buy them, clean out the garbage and funky smells, do something with the front lawn and list it at a fair price. And you still go fast. You'll make more money, and you'll get more deals done.
I believe this is actually easier than trying to make the stars and planets line up, like doing wholesale deals that have a very short window of opportunity. So what if you don't actually sell that whole-tail? Then finish the renovation and flip it full retail or convert it to a rental... plans B & C are still out there.
Then, here and there when things DO line up, go ahead and assign one to a buddy. No harm in that. Just as long as the house gets bought.
AND (this is the cool part) by virtue of the fact that you ARE actually buying houses, you get a level of credibility that the rest of those morons don't get. You have an endless ready made stream of FREE online media content to blast out and show the masses that you aren't just some goon hanging bandit signs. For SEO purposes there is honestly nothing better. Testimonials and house renovations...
Dammit, I need to be my own guru. Maybe I'm doing this wrong.
@Mike B. I’m taken back by the flak wholesalers get and which I understand. But from my early point of view is that there are different routes, some harder than others, and some wholesalers who are genuinely in the market to help people professionally. Utilizing all people incorporated in real estate. As for me I wish to be as well informed as possible but I am still expecting to make mistakes along the way, like all beginners. I’m very happy I made this topic because now I can see what to avoid and what to focus on.
What would you say is the best way for a wholesaler to approach you when offering a property?
Thanks again for all your input.
Here is the first problem with wholesaling and wholesalers.
1. 95% of the investors/wholesalers are chasing ~2% of the deals. Then the iBuyers, Ugly House, take their 5%-7% of the market. Agents take 90%+ ! <br>
Next
2. Every guru out there touts that flipping is the only way you can make money in RE. I have never seen a weekend seminar at the Marriot on how to become an attorney or doctor or even a landlord. There is no sizzle and oversized expectations where people pay $30K to some HGTV bonehead for the secrets to flipping. <br>
3. Wholesalers have to work 2x+ times as agents. How they continue I have no idea. It has not worked for me.
4. Wholesalers are functioning without a license [many states ban it] and operate with no disclosures, safegaurds or what not - for the buyer, seller or even themselves.
@Justin Badillo Honestly it’s finding buyers. I feel like people are scared to be the first to invest in a bad/upcoming area.
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#3 Real Estate News & Current Events Contributor
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@Rob Massopust not to rain on your parade but there is another emerging "group" steadily taking over market share from wholesalers and that is licensed RE Agents & brokerages teaming with home owners to complete a full rehab to than list the property full retail. We look at the pre-renovation market value (say it's $100k) and then set our reno budget (say 35K). Agent/broker funds and manages the reno. Then lists and sells property receiving full agency commission. (Say sells for $200k). the gross net left over the 100K, first the full reno budget $ is paid to agent/broker, and the remaining net net is split 50/50. Everyone wins.... except the wholesaler and later the flipper because it's more market share gone.
I am starting to toy with this strategy myself, and I am hearing it more and more from others. Time is on the horizon that non-licensed wholesaling will be the exception and not the rule.
- James Hamling
@Justin Badillo
It's a cyclical business model, most will have to make major adjustments to survive the next few years. It's a crowded field and there will be innovation by some, and many will go away.
4 years ago it was a legitimate approach, but things move fast in this industry.
I stopped reading their emails about 6 months ago.
@Larkin Adey interesting, what would you suggest instead.
@Justin Badillo
Well, over the last 5 years the best wholesalers created large businesses and use massive direct mail marketing campaigns to gobble up most of the quality leads the market produces. I'm talking 40-60k per month in marketing budgets these days.
If you can compete with that, fine. If not, you need to find a niche, or an undiscovered pipeline/funnel - don't follow the crowd. There may be opportunities in the collapsing commercial space (think small retail and covid)
I sell Real Estate, flip houses occasionally (when I find an actual deal), am a partner in a development, and own multifamily properties. So - I'm no innovator, just an average investor.
Many in this arena have different roles. Becoming a agent is suggested. I would also suggest a financial degree. Maybe become a notary signing agent. Paralegal training is a short course. Sometimes property preservation people get leads an average person wouldn't get. You can be as honest as you can be many in the industry are not. It put's those of us that are at risk. Been in asset management since 1994. Be sure to understand your buyer's parameters before looking for properties to wholesale. You don't want to get caught with a viable property,and not have a qualified buyer. Screening buyers can be a process of it's own. True wholesale deals are not just drive by deals. Sometimes, it takes negotiations to get the best deals. What you think is a good deal may be made better by doing xyz. There are a few people if you review the posts that have a clue of what their actually doing to produce results that are not gurus. The only STUPID question is the one you DON'T ASK! :)
@Kathy Utiss awesome thank you!! I’m currently looking for buyers and I would like to make a deal in order to start paying for licenses! I love learning and getting into real estate has me excited!
Originally posted by @Justin Badillo:
@Mike B. I’m taken back by the flak wholesalers get and which I understand. But from my early point of view is that there are different routes, some harder than others, and some wholesalers who are genuinely in the market to help people professionally. Utilizing all people incorporated in real estate. As for me I wish to be as well informed as possible but I am still expecting to make mistakes along the way, like all beginners. I’m very happy I made this topic because now I can see what to avoid and what to focus on.
What would you say is the best way for a wholesaler to approach you when offering a property?
Thanks again for all your input.
Here is my would-be approach -- get them to go with you and visit the property. I did this one, and it was the only deal I have ever assigned. He and I together crafted the offer. I charged him almost nothing but it was way better than nothing and the seller got her house unloaded, and my buddy got his first BRRRR deal. Win-win-win. The way it is supposed to be.
OK that way is super rare and really hard to do like that, to bring your buyer along with you, but he and I get on well and he was keen to get going and this house was freaking perfect for him - for anybody around here, really. But that is the best way.
The next best way is to call them and ask them to coach you. Hey Justin, I need to consult with you for 5 minutes on a deal. I am making an offer on this great lead I am working. I think we got some equity here, but I'd like to get your opinion. You won't have to ask, they will tell you where they think you need to be on your offer. And some will ask you to follow up if you get it under contract.
Make sure you are getting photos.
I JUST REFUSE to put offers on stuff and contact them up if I cannot back it up and complete the buy.
Disclaimer- I'm not a wholesaler or a realtor. I do find it interesting that if a wholesaler gets a property under contract and doesn't purchase it or get it sold, whatever you want to call it, he/she is a bad wholesaler with poor intentions. However, when a realtor signs up to list a property that doesn't sell, it is a problem with the property, bad market, owner wants too much type of deal. Also, a wholesaler "steals equity" at the beginning because he/she is not being forth right with a homeowner, when everyday houses sell through realtors for less than they should- not because anyone is trying to pull a fast one, but because a listing has gone stale, a contract is about to expire, seller is fatigued, etc. The irony is one is "widely accepted" while the other is "negatively categorized." The bottom line for both in my world, is there are good and bad in both worlds. In my opinion, yes a realtor has more safeguards in place and usually has more protections for themselves and their business, but in a market like we have now in many places there are lots of brokers just signing agents in hopes of capturing more volume and from what I see, offering much less quality service than in a normal or slow market.
I guess part of the way I view them, without a very established relationship- the wholesaler is the yard sale, craigslist listing or facebook marketplace item. Often a more attractive price for a good, but comes with a bit more risk. A realtor is like the box store, where you get a receipt, have the protections to return, get service on an item, etc. In my world one offers more security than the other, but doesn't always leave the most meat on the bone. The reality is, both have a place in the marketplace and collide when trying to serve the same niche.
Originally posted by @Justin Badillo:
@Mike B. I’m taken back by the flak wholesalers get and which I understand. But from my early point of view is that there are different routes, some harder than others, and some wholesalers who are genuinely in the market to help people professionally. Utilizing all people incorporated in real estate. As for me I wish to be as well informed as possible but I am still expecting to make mistakes along the way, like all beginners. I’m very happy I made this topic because now I can see what to avoid and what to focus on.
What would you say is the best way for a wholesaler to approach you when offering a property?
Thanks again for all your input.
Honesty goes a long way. Try and find an experienced investor to shadow so you can see a project develop from start to finish. Offer him/her your labor to pay for the eduction. Network. Talk to some local GC's and ask what their pricing is per sq ft. There's no way of knowing if you have a deal if you don't understand that key component. Go the extra mile. When I send out a property, I offer to do the rehab at the price stated in my email. If you're not in a position to run a project, have the ability to refer a GC that will do the work at the price you stated. Offer additional value.
Do all of the due diligence on the property as if you're the one buying it. No surprises for the end investor. Look up building violations, zoning, etc... everything you would want to know if you were spending your own money on the project. Reach out to local HML's so you can refer funding sources. Try to solve every possible problem before you present the property.
It's been my experience that investors will put you to spam or stop opening your emails after you send 1-2 bad deals out. Your name is everything in this business. Quality will rise above quantity.
Best of luck to you and if you have any questions along the way, feel free to pm me.
All you wholesalers out there, does anyone know a wholesaler in Southeast Michigan? Specifically Monroe County?
@Justin Badillo I love this question because its something I have been wrestling with lately in my business.
As some background, I own 50 rental units with a partner and have 14 more closing in the next 45 days.
We are currently running 4 flips, have a real estate team of 25 agents and run a free wholesaling mastermind with 300 members.
As the market sbifted towards a sellers market 7-8 years ago.. more and more we have found that inventory is decreasing, agents are increasing and a seller has more options to sell their property as buyers also increase.
This all adds up to the game of wholesaling becoming more work. The deals are farther and fewer between eachother. Over all it makes me wonder if a wholesaler shouldn't ALSO have their real estate license as a way to convert more often.
This is just something I have been considering mentioning to the investors in my community who have been asking the same thing.
Is wholesaling still worth it. Yes, of course it is, but you had better have another source of income and for how hard you are going to work, you should consider taking the deal down yoursf.
